1. Electronic Funds Transfer 101
EFT
Office of the State Controller
August 2008

2. Two Types of EFT
EFT is a generic term – Describing two different methods of transferring funds electronically
Both performed through Federal Reserve Bank System (Except for “in-bank” or “on-us” transactions)
Common mistake to call an ACH payment a wire transfer
Each are handled by different departments at a bank

3. Wire Transfer Movement of funds is real time – effected immediately
Between two banks
Within same bank
Foreign bank
Movement of funds is real time – effected immediately
FRB open for fed wires up to 6:00 p.m.
Book Transfers are memo posted up until midnight
ZBA (Zero Balance Account) sweeps are book transfers
Fed Wire Affects banks’ Reserve Accounts maintained at the FRB
Sending bank’s account at the FRB gets debited
Receiving bank’s account at the FRB gets credited
Foreign exchange and Euro dollars through “Clearing House for Inter-bank Payments System” (CHIPS) – 54 New York Banks

4. Wire Transfer Utilization
When appropriate to use
Time sensitive - Funds need to be moved same day initiated
Large dollar amounts
Examples
Debt Service Payments (preserve State’s credit rating)
Funding ACH payments (e.g. payroll direct deposit)
Funding investments (e.g., at custodian bank)
Adjusting balances (between depository banks)
Remitting ESC payments (to US Treasury)
DOR accepts wire transfers from corporate taxpayers on an exception basis only

5. Initiating Wire Transfers
Banks provide corporate customers ability to initiate their own wires via online banking access
Templates are used
Repetitive Transfers – Pre-established ABA# and acct.#
Non-Repetitive - Open wire – to anywhere
State Treasurer initiates all wire transfers for agencies
Via Wachovia Connection and BOA Direct
As requested by agencies via Core Banking $ystem
Results in debit to agency’s disbursing / STIF acct.
DST WC
Disb. Acct.
at DST
Online Wire System
DST’s Bank
Payee’s Bank
Agency Logs in

6. ACH Network – A batch-process, store and forward for future settlement
Two types of ACH (Automated Clearing House)
Electronic Drafts
Initiated by sender or receiver
If by sender – Sender authorizes a third party to initiate transaction
If by receiver – Receiver initiates transaction
Also referred to as Direct Payments
Direct Deposits
Always initiated by sender
Sender’s account is debited and receiver’s account is credited
Receiver’s Acct
Bank account
Debit card account

7. ACH Utilization When appropriate to use
Large number of payments in a single file (batch)
At least one day is available between initiation and settlement
Any size dollar amounts
Examples
Outbound Payroll direct deposit to bank account (ACH credits)
Outbound Payroll direct deposit to debit card account (ACH credits)
Outbound Vendor payments (ACH credits)
Inbound Taxpayer payments (ACH credits or debits)
ACH Transactions can have Addendum Records
Remittance data attached
Can be interfaced with A/R system
DOR requires taxpayers to use TXP format

8. ACH Players EastPay NACHA 3 2 4 1 Governing Org. Trade Group
Originating Depository Financial Institution (ODFI)
ACH Operator (FRB)
Receiving Depository Financial Institution (RDFI) 4 1
Receiver (Company / Employee)
Originator (Company / Employer)
Authorization / Enrollment

9. State Checks Average Cost - Range $.74
Primary Differences
Wire Transfers
Item Cost - $6.75
Same day funds
Transfer almost instantaneous
Use for critical payment (e.g. debt service)
ACH
Item Cost < 1 penny
Next day funds
One day delay in settlement
Used for large batch files (e.g., payroll)
State Checks Average Cost - Range $.74

10. Applies to consumer checks only, not business checks.
Electronic Checks
Loosely used term – Refers to two different methods
Online Paper Check
Developed by “Financial Services Technology Consortium (FSTC) – Not-for-profit group of CA banks
Initiated using a PIN and digital signature
Receiver prints out paper check for deposit
ACH Conversions (most common method referred to)
Transactions converted to ACH debits (e.g., ARC, POP, WEB, TEL)
Services can be provided by third party processors
Account verification determined upfront. Guarantees available.
Examples of services provided through third-party CyberSource (POP)
Telecheck:
CheckFree:
AmeriNet:
Paymentech:
Applies to consumer checks only, not business checks.

11. Regulator Governance Issued by Federal Reserve Bank
Regulation E, per Electronic Funds Transfer Act (EFTA)
Issued by Federal Reserve Bank
Covers ACH and debit cards (but not wires or credit cards)
Consumer protection oriented
Some protection afforded the consumer does not apply to corporate or government customers
NACHA Operating Rules
National Automatic Clearing House Association
Applies to ACH transactions only
Applicable to both consumer and corporate (including government)
Uniform Commercial Code (UCC) – Article 4A
Applies to Wire Transfers Only
Uniform Commercial Code (UCC) Articles 3 and 4 and Reg CC
Applies to negotiable instruments (checks)
Reg CC issued by Federal Reserve - Applies to checks – not EFT
Check 21 (Check image conversion) governed by Reg CC, not Reg E

12. ACH Terminology Typical ACH Standard Entry Class Codes
PPD – Prearranged Payments and Deposits (Consumer payments)
CCD - Cash Concentration or Disbursements (Corporate payments)
CCD+ - Corporate payments with 180 character addenda record
TXP – Addendum format for Tax Payments (Used by DOR)
Check Conversion Standard Entry Class Codes
POP – Point-of-Purchase / Face-to-face (e.g., Wal-Mart)
ARC – Accounts Receivable Conversion – Non-face-to-face (e.g., Lockbox)
BOC – Back Office Conversion – Face-to-face, but later converted (Mar ‘07)
Check Conversions not eligible for use with corporate or government checks and have an amount limit of $25,000
Other Standard Entry Class Codes (Debit entries)
WEB – Internet-initiated entries against a consumer account
TEL – Telephone-initiated entries against a consumer account
RCK – Represented check (representment of a non-sufficient funds check)

13. Daylight Overdraft
Federal Reserve charges bank interest per minute for overdrafts in their Fed account
Banks do not allow wire transfers to be made from account if “available balance” is not sufficient
Over-the-counter deposits not posted until night
ACH credits are posted in mornings (6:30 and 8:30)
Could pose problems when need to wire funds out
Some banks will assign an allowable daylight overdraft limit
Based upon customer’s credit risk
Based upon bank overdraft cap at the FRB
State’s arrangements with banks are handled by DST

14. Check 21
Federal legislation – Result of 9/11 when planes could not fly
Became effective October 2004
Banks have option of presenting “substitute checks” instead of original check
Also referred to as “Image Replacement Documents” (IRDs)
Originals paper checks are to be destroyed
Substitute document is legally same as original
Check 21 is different than “Check Conversion” (POP/BOC/ARC)
POP, BOC & ARC - Check converted to ACH transaction
Therefore POP, BOC & ARC subject to NACHA Rules – not UCC
POP, BOC & ARC only applicable to “consumer” checks
Check 21 applicable to both “consumer” & “commercial”
Check 21 has no amount limit – Check Conversion limit is $25,000

15. EFT Milestones 1972 – SCOPE (Special Committee on Paperless Entries)
1974 – NACHA (National Automated Clearing House Association)
1977 – Retirement System began using Direct Deposit for retirees
1979 – Central Payroll began using Direct Deposit for employees
1980s – University Payroll Centers began using Direct Deposit - employees
1984 – GMTS (Governmental Moneys Transfer System) implemented by DST for paying local units of government (Replaced by STEPS)
1988 – DOT Payroll began using Direct Deposit for employees
1992 – STEPS (State Treasurer’s Electronic Payments System) implemented for local units (two-way street). (Ended 2003, except Retirement)
1994 – DOR implemented EFT for corporate tax collections
1990s – LEAs and community colleges implemented direct deposit for employees (costs being paid for by DST)
1999 – SB 222 enacted, giving OSC responsibility for EFT
2002 – Common Payment System implemented (DMV-IRP first)
2005 – OSC initiated expansion of Electronic Commerce Program

16. State’s E-Commerce Program
State’s Cash Management Legislation (G.S ) requires State Controller to develop policies regarding cash management practices, including E-Commerce.
Two Master Services Agreements (MSAs) procured
MSA for Electronic Funds Transfer Services – Wachovia Bank
MSA for Merchant Card Services – SunTrust Merchant Services
Agencies and local units of governments eligible participants
Each participant must execute an Agency Participation Agreement (APA)
Paying for Services – In accordance with MSA fee schedule
Agency pays in most cases
EFT for payroll and NCAS payments – DST pays

17. E-Commerce Inbound Programs
Utilizes Both Merchant Cards and EFT

18. E-Commerce Outbound Programs
Utilizes EFT Only

19. Support Services Center
More Information
Office of the State Controller Web Site
David C. Reavis
E-Commerce Manager
(919)
Amber Young
Central Compliance Manager
(919)
Support Services Center
(919) 875-HELP (4357)
August 2008
Robert Powell
State Controller